In a difficult year for retail stores, one channel that is seeing the largest growth in shopper activity is deep discount grocery stores (not inclusive of dollar stores) according to Nielsen Homescan panel data. Between 2011 and 2016, store counts of deep discount grocery stores increased by 17.6%. Included in this group would be stores such as Aldi, Save-a-Lot and Lidl (which opened its first U.S. stores this summer).
So why have these stores seen such growth despite having a smaller footprint and limited product selection as compared to other grocery stores? According to a spokesperson for Aldi (which has 1,600 stores in 25 states), the formula isn’t complicated. Aldi has been successful due to its low prices but also providing value and quality which keeps their customers coming back. Aldi maintains low costs by focusing on food and bypassing grocery in store services such as banking and pharmacy.
Like Aldi, the focus on food at discounters has been done through their private label brands. This has been the key factor in winning over shoppers from other channels, especially millennials, who have fewer stigmas about private label items as compared to older generations. Discount retailers have more than twice the share of store brand dollars (49%) compared to 15% in mass merchandise and 20% in supercenters.
While discounters are reaping the benefits of having a strong brand presence within their stores, opportunity for growth continues to rise. Discounters are expected to grow at five times the rate of traditional grocers in the next three years. This provides little time to be reactionary. Instead, retailors must have a strong growth strategy in place to remain relevant and provide consumers the value and quality they are looking for at the right price.
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